New Independent Contractor Test: 3 Clarifications from the Court of Appeal

If your business uses independent contractors at all, you have probably heard about Dynamex Operations West, Inc. v. Superior Court and the new “ABC Test” to analyze whether a worker is an employee or an independent contractor. You were probably worried about whether your independent contractors pass the ABC Test. You are justified in worrying because the new test makes it much more difficult for someone to be classified as an independent contractor. This then opens the door for claims of misclassification, for missed meal break and rest break penalties, and unpaid overtime because that’s what you paid your hourly workers but not your independent contractors. Your business may be sitting on a 5 to 6-figure time bomb. ABC Test Recap If you have not heard about Dynamex or the ABC Test, or if you need a recap, here it is. Under this new independent contractor test, a worker is properly considered an independent contractor to whom the applicable wage order does not apply if the hiring entity establishes all of the following: (A) that the worker is free … Continue reading
Employee or Independent Contractor? It’s not just a label.
I received an interesting response to my last post on the correlation between the unemployment rate and discrimination charges, which lead me to this blog post. A reader suggested that employers could protect themselves by not having any employees and hiring only independent contractors. Yes, there are many benefits to hiring independent contractors as long as they are truly that – independent. However, misclassification of independent contractors when they really are employees is common. This mistake has costly consequences for employers. Below are 3 costs to employers who misclassify independence contractors: Unpaid taxes. Should the IRS audit your business and reclassify one or all of your workers as an employee, you now owe the IRS employment taxes, the employer’s share of FICA taxes, and federal unemployment taxes, which were not paid because the misclassified worker was treated as an independent contractor. Additionally, the employer would be liable for penalties and interest for failure to pay the taxes and failure to file payroll tax returns. Meal and Rest Break Premium Pay. A worker classified as independent contractor probably did not receive … Continue reading